5/31/11

What is the definition of economics? Economics is a social science that focuses on individual people or firms. It looks at the choices these people and firms make with respect to production, consumption, and distribution of products and services. We use economics to create models, or simplified versions of the real world to analyze trends and behavior so that we are able to develop policies that can correct common problems such as waste, unemployment, or inflation.

There are two sub components of economics, microeconomics and macroeconomics. Microeconomics is like taking a microscope to economics, and focusing on one individual or firm. We try to use economics to predict their behavior. This is where utility theory, and production theory come into play. Macroeconomics focuses on the aggregate economy, and looks at countries and how they interact. Macroeconomics looks at GDP (gross domestic product), employment, inflation, and trade.

The core idea of economics deals with scarcity, which is covered in another post: on scarcity.